The odds of a successful Microsoft (NASDAQ:MSFT) takeover of Activision Blizzard (NASDAQ:ATVI) haven’t been this high in the year-and-a-half timeframe since the deal was proposed. Indeed, even video game stocks like Electronic Arts (NASDAQ:EA) and Take-Two Interactive Software (NASDAQ:TTWO) could have room to run as the biggest deal in gaming inches closer to the finish line.
In any case, Microsoft looks like it has a lot to win from onboarding Activision Blizzard’s assets. As such, I am also bullish on MSFT but am keeping a neutral stance on ATVI.
At $92 and change, Activision Blizzard stock only has around 3% to go before it hits the acquisition price of $95 per share. Indeed, it’s been a lengthy regulatory battle for Microsoft but one that could end in its favor following the latest judge ruling that denied the FTC’s move to halt the Microsoft-Activision tie-up.
Undoubtedly, the deal isn’t a certainty, as the deadline to close has been moved to October 18. Still, most of the merger-arbitrage gains have been made, and that’s been enough for Warren Buffett’s firm to sell 70% of its stake in ATVI. Indeed, another 2-3% or so doesn’t seem worth pursuing, given the regulatory unknowns that still may lie ahead! I believe this is another smart move by Buffett and another mark for the win column over at Berkshire Hathaway (NYSE:BRK.B).
Successful Microsoft Deal Could Pave the Way for Gaming Acquisition Rush
It took quite a bit for Microsoft to make it through the regulatory battles. Given the recent judge’s ruling, it certainly seems like even a “long-shot” sort of deal is possible as long as the right moves are made to appease regulators and consumers. If the Microsoft-Activision Blizzard deal closes this year, I do think the race is on to consolidate the video gaming industry.
Undoubtedly, there won’t be that many pure plays available on the public markets if ATVI goes away. Therefore, remaining publicly-traded companies like EA and TTWO may actually be in for a greater scarcity premium, and perhaps new speculators could look to play a takeover by another big-tech beast.
Undoubtedly, the market overlap between mega-cap players seems to be increasing. They all seem to have some skin in the AI race, and now, entertainment services seem to be another battleground as we inch closer to the Metaverse and spatial computing. With that in mind, I would not be shocked if another tech giant with a more than $1 trillion valuation steps up to the plate to gain a big-league game developer.
Video game developers have been hit with tough times. That said, I view the market as one that could be made better in the hands of a cash-rich tech giant with massive financial resources. Such greater financial backing could allow for more ambitious projects that may have been too risky for a standalone firm.
Indeed, Take-Two Interactive is one video game firm that’s been profoundly successful with its ambitious, massive open-world games like Grand Theft Auto and Red Dead Redemption. With such expertise, the company could be the next best thing for a potential acquirer who seeks to compete against Microsoft in the video-gaming market.
Keeping Consumers Happy Could be the Key to Improving Deal Odds
Microsoft is keeping the beloved Activision-owned FPS (first-person shooter) franchise Call of Duty on PlayStations for another 10 years. With a binding agreement in place, PlayStation gamers are happy. However, it’s Xbox gamers that have the most to win from a greenlighted Activision Blizzard deal.
Undoubtedly, the Xbox Game Pass has been nothing short of transformative for various gamers. As titles from Activision and Blizzard launch on the platform, gamers will get even more bang for their buck, and Microsoft will be able to justify more price increases. Either way, the deal seems to be a win for all parties involved, especially the consumer.
As long as consumers stand to benefit, massive mega deals may still have a reasonable chance to complete despite anti-trust regulators who seem so willing to crack down on big tech. With Activision Blizzard likely to come off the market, I’d look for other mega caps to take a page out of Microsoft’s acquisition playbook. Yes, regulatory hurdles are daunting to get through, but Microsoft has shown it is possible despite the non-stop headlines warning that big tech has become too powerful.
Is Microsoft Stock a Buy, According to Analysts?
Turning to Wall Street, MSFT stock comes in as a Strong Buy. Out of 35 analyst ratings, there are 31 Buys, three Holds, and one Sell recommendation. The average Microsoft stock price target is $371.20, implying upside potential of 8.5%. Analyst price targets range from a low of $232.00 per share to a high of $425.00 per share.
Is Wall Street Bullish on Video Game Stocks?
Looking at the other three stocks mentioned in the article using TipRanks’ comparison tool, it looks like analysts are most bullish on TTWO, giving it a Strong Buy rating. Nonetheless, all three stocks below have relatively little upside potential, at least according to analysts’ price targets.
The Bottom Line
As Microsoft tries to snap up Activision Blizzard, I expect that other big tech companies will take note as things get serious about gaming.
It’s hard to tell if more industry consolidation will be in the cards from here. Regardless, I like gaming plays like EA and TTWO for the long run, as they may very well be the last few targets that can help even the video game playing field.
